Foreign Exchange

Nearly 60 percent of Europe’s largest banks are closed to new business and are not lending against commercial real estate, according to a recently released survey from Cushman & Wakefield. The remaining banks that are willing to lend to new clients have specific conditions, and they are only willing to provide debt to established borrowers for well-leased, prime assets.

Cushman & Wakefield questioned 83 of the largest European banks and found that only 22 are lending to new clients. Of these 22 lenders, half preferred deals involving lot sizes of less than £20m with the rest able to finance deals as much as £50m.

“The credit crunch has significantly reduced the availability of debt financing for property transactions and some banks who are overexposed to the property market have effectively withdrawn from writing new business,” says Ed Daubeney, partner in Cushman & Wakefield’s corporate finance team.

Daubeney says the balance sheet lenders that are still lending to the market now have far stricter loan criteria and are demanding higher margins and lower loan-to-value ratios, demonstrating that banks are demanding less risk in acquisitions. In the UK, ratios are down 60 percent to 70 percent from 80 percent to 85 percent prior to the economic downturn. In Western Europe, ratios have dropped to 50 percent to 60 percent from 85 percent to 90 percent.

“We consider there to be up to 15 lenders who are actively lending to new clients without many preconditions,” Daubeney says. “There is a distinct ‘flight to quality’ in the current debt market. You can still arrange funding for experienced borrowers for prime assets with long leases let to investment grade covenants.”

Cushman & Wakefield says the lack of lending against commercial property has led to a huge fall in the volume of completed deals. Global investment in commercial property fell 59 percent in 2008 to $435 billion, down from 2007’s record total of $1.05 billion. This was the lowest annual total since 2004 with a significant decline in investment from foreign investors. Figures from Cushman & Wakefield’s Investment Atlas 2009 also predict that volumes will fall again this year to around $412 billion.